VZCZCXRO8131
PP RUEHBC RUEHDE RUEHKUK
DE RUEHDIR #0006/01 0451308
ZNY CCCCC ZZH
P 141308Z FEB 08
FM IRAN RPO DUBAI
TO RUEHC/SECSTATE WASHDC PRIORITY 0222
INFO RUCNIRA/IRAN COLLECTIVE
RUEHDIR/IRAN RPO DUBAI PRIORITY 0215
RHEFDIA/DIA WASHINGTON DC
RUEAIIA/CIA WASHDC
RHEHAAA/NSC WASHINGTON DC
RUEHDE/AMCONSUL DUBAI PRIORITY 0196
RUEHAD/USDAO ABU DHABI TC
RUEHAD/AMEMBASSY ABU DHABI PRIORITY 0164
RUEATRS/DEPT OF TREASURY WASHINGTON DC

C O N F I D E N T I A L SECTION 01 OF 02 IRAN RPO DUBAI 000006 
 
SIPDIS 
 
SIPDIS 
 
E.O. 12958: DECL:  2/14/2018 
TAGS: ECON EIND EMIN PGOV IR
SUBJECT: IRANIAN STEEL INDUSTRY ACCORDING TO AN INSIDER 
 
RPO DUBAI 00000006  001.2 OF 002 
 
 
CLASSIFIED BY: Ramin Asgard, Acting Director, Iran Regional 
Presence Office, Department of State. 
REASON: 1.4 (d) 
 
1.(C) Summary.  Iran currently produces 7 million tons of steel 
annually which is enough to meet 50% of its domestic needs, said 
an Iranian steel insider 13 February.  There are three main 
government production facilities and ten large private 
companies, he said, adding that government facilities have a 
competitive advantage as they do not pay taxes and their fuel 
and raw material costs are subsidized.  Until two years ago, 
said the insider, Iran imported the rest of its steel needs from 
Russia, Ukraine and Kazakhstan; now he said 70% of Iran's steel 
imports come from China.  He said that the government has 
artificially deflated steel prices in the run-up to the 
elections and that he expects to see price hikes after Nowruz. 
In general, the insider said, the demand for steel has decreased 
as the construction boom has slowed due to skyrocketing material 
and labor costs.  End Summary 
 
Domestic steel production 
 
------------------------------ 
 
2.(C) IRPoff met an Iranian steel insider February 13.  The 
insider reportedly has a steel import-export business in Dubai 
and he works as a steel broker in the Tehran bazaar.  He said 
that Iran currently needs 14 million tons of steel a year; half 
of which is produced domestically and half of which is imported. 
 The insider said that there are three main government steel 
production facilities which convert iron ore to pig iron and on 
to finished steel.  Reportedly there are ten main private 
facilities; two of which produce finished steel, while the other 
eight produce pig iron - which is then turned to steel in other 
smaller facilities, he said. 
 
3.(C) The insider said that subsidized government factories pay 
below cost prices for raw iron ore and fuel.  He also said that 
the government companies do not have to pay tax, while the 
private facilities do.  The steel trader said that all ten of 
the private facilities were started under the former Khatami 
administration when start-up industrial factories were granted 
business loans with 4% interest.  Now, said the insider, it is 
virtually impossible to start a new factory - unless you have 
insider connections - as loan interest rates run at about 24%. 
 
4.(C) When asked about privatization plans of the three 
government facilities, the steel insider said the Mobarakeh 
Steel Company in Esfahan just floated 5% of its shares on the 
Tehran Stock Exchange the morning of February 13.  The shares 
are worth a total of roughly $500 million said the trader. 
While the insider would like to purchase the shares, it is 
impossible for him to do so, he said.  The trader claimed that 
private sector investors lacking strong links to key government 
officials remain reluctant to invest large sums in public 
transactions.  According to the insider, such a display would 
invite unwanted attention to the sources and the use of their 
wealth.  "Once you start spending hundreds of millions of 
dollars, people notice...Wealthy Iranians without appropriate 
government connections invest overseas as it is just easier," he 
claimed. 
 
Steel imports 
 
-------------- 
 
5.(C) Iran imports 7 million tons of steel annually, or half of 
its steel needs, said the steel trader.  Until 2006, Iran 
imported steel from Russia, Ukraine and Kazakhstan, he said. 
Now, claimed the trader, 70% of Iran's steel imports come from 
China; with Russia and the Ukraine accounting for the other 30%. 
 "Under pressure from the US," bemoaned the trader, "China's 
prices have doubled in the last two years." 
 
6.(C) The trader said that while there are most likely close to 
500 Iranians who have licenses to import steel, there are only 
20 main players.  One individual named Sinaiyan (NFI) controls 
20% of the import trade, claimed the trader, adding that 
according to rumors, Sinaiyan does not pay customs duties.  The 
trader does not know who Sinaiyan is connected to, but surmised 
it has to be "someone important." 
 
Prices 
 
------- 
 
 
RPO DUBAI 00000006  002.2 OF 002 
 
 
7.(C) Government production facilities are forced to sell their 
steel at a predetermined price, claimed the trader.  While 
domestic producers are not obligated to sell steel at the same 
government price, they usually can not charge much more as it is 
all traded together on the Tehran Stock Exchange, said the 
insider.  The trader said that in the run-up to the March 
parliamentary elections, government authorities are keeping the 
price of steel artificially low; he expects to see a major spike 
in the cost after the Iranian New Year. 
 
8.(C) While steel needs are holding steady, said the insider, 
demand has not grown as the construction boom has slowed.  The 
insider said that while there is a great demand for residential 
dwellings, not everyone can afford to buy due to increased labor 
and raw material costs.  The insider claimed that up until last 
year, construction companies could hire "good" Afghan workers 
for about $2 a day.  Now, he said, the government has sent all 
the illegal Afghans home, which has pushed labor costs up for 
the remaining Afghans to about $20 a day. 
 
9.(C) Comment.  IRPoff met the steel insider for the first time, 
upon the recommendation of a long-time contact.  The steel 
trader splits his time evenly between Iran and Dubai and said he 
would be happy to answer any specific questions IRPO has on the 
steel business. 
 
10.(C) Comment continued.  This account demonstrates that 
challenges facing private sector investors in Iran appear almost 
insurmountable at times. Not only are the odds stacked against 
them in the predominantly government controlled economy, it is a 
virtual necessity to bring in a government partner for access to 
investment opportunities -- further concentrating economic power 
in the hands of a privileged few. 
ASGARD